The price of protection on DaimlerChrysler jumped four basis points this week to 94bps in reaction to press speculation that the corporate intends to increase its stake in Mitsubishi Motors to a majority holiding, said traders. Five-year credit-default swaps on DaimlerChrysler had not moved from 90bps since early April, said one trader, so the move to 94bps last week was significant. Proprietary trading desks and hedge funds looking to buy protection on the name were the main drivers of the price hike, added the trader. Thomas Frohlick, head of corporate media relations at DaimlerChrysler, said, "This is pure speculation. There has been no decision at Daimler regarding Mitsubishi Motors."
"Throwing good money after bad," is how one trader described DaimlerChrysler's reported decision to increase its holding. Reports in USA Today and The Financial Times last Wednesday said chief executive Jürgen Schrempp was considering spending EUR3 billion (USD3.58 billion) to support Mitsubishi. The rumored size of the stake is higher than expected, explained a trader at a German bank. DaimlerChrysler is not a sensitive name, he added, but Mitsubishi Motors is a company that has been in difficulty for some time.
Standard & Poor's rates DaimlerChrysler BBB, with a negative outlook. Scott Sprinzen, an analyst in New York, said, "As and when an official announcement is made by DaimlerChrysler, we will review the rating." Moody's Investors Service rates DaimlerChrysler A3, with a negative outlook and puts Mitsubishi Motors at Ba3 and is also on negative outlook.
Five-Year Credit Protection On Daimler Chrysler
Source: JPMorgan
